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China to invest in US infrastructure
Chinese firms are encouraged by both Beijing and Washington to invest in the US infrastructure projects, according to WSJ. To avoid political rhetoric, Chinese firms will only take minority share and remain passive investors. And these projects should be mutual beneficial to the two countries: for China it’s a good way of diversifying its foreign exchange reserves; for the US, these infrastructure projects will bring jobs while not increasing government spending, which helps to improve government budget situation.
In general, this is a smart move on both sides.
Hu answers questions on human rights
This is the first-ever press conference I’ve seen of President Hu.
Dealing with a more assertive China
The following is a more sensible interview with former US Ambassador to China, Admiral Prueher.
Making sense of China
Martin Jacques explains the three building blocks in understanding China, and how China is fundamentally different from the West.
This is one of the videos worth watching, and I’d highly recommend it. Although I am not a believer of those grand projections into the future, Martin got his facts about China very right.
Andy Xie on China’s inflation outlook
Interview of Andy Xie, former Morgan Stanley Chief China economist.
Pay attention to his view that raising interest rate will have limited effect on containing inflation because it may prick the housing bubble. This is especially true when considering local governments’ huge stake in keeping housing and land prices high.
I expect Chinese government will resort more to raising bank reserves and administrative measures to contain inflation.
Three other things are also likely to happen:
1) Chinese government may distort official inflation numbers, i.e., more human smoothing.
2) Accelerate Yuan’s appreciation, which I think is most likely. In fact, Qing Wang of Morgan Stanley expects the RMB to appreciate from currently 6.64 to 6.2 by Dec. 2011. Marty Feldstein, in my earlier post, echoed the similar view.
3) tighter capital control to prevent inflow of hot money.
More broader picture is that the super easy monetary policy by the Fed is propping asset bubbles everywhere in the world, especially in the fast growing emerging economies (carry trade factor). Besides China, Brazil also faces grim inflation outlook, and Brazilian interest rate is already above 10% and expected to rise further.
Commodity prices are already high and fast rising. But given the debasement of paper currency across board, and the grim inflation outlook in emerging markets, it’s reasonable to believe commodities are set to rise further.
Higher volatility is ahead of us; expect to see more booms and busts; and China is facing another real challenge.
Locate China’s housing bubble
Housing market tends to be local. It’s rare to see a nationwide price decline. The recent US housing bubble is an exception and often considered a black swan.
People have been talking about China’s housing bubble for a few years now (see my previous post on China’s housing bubble debate), but where exactly is the bubble located?
The recent NBER research sheds some light on the issue. The graph below shows the price-to-income ratio of China’s eight major cities, from 1999 to Q1 of 2010.
(click to enlarge, source: NBER w16189)
Beijing and Shenzhen are clearly in bubble-shape — the typical and familiar parabolic surge in price, and they are followed by Shanghai and Hangzhou.
Now, let’s have some comparative perspective. How the same ratio compares to the major cities in the United States.
The graph below (courtesy of Infectious Greed) shows the price-to-income ratio of US cities. San Francisco, Los Angeles, Seattle were among the highest.
(click to enlarge)
At the peak of the housing bubble between 2006-07, the same ratio for San Francisco, the highest among all US cities, was around 11. In contrast, Beijing has a ratio of 18, and Shenzhen at astonishing 22.
Something is happening in China
There appears to be some heated debate going on within the Chinese Communist Party (CCP) regarding the future direction of China’s political reform.
CCP censorship recently ordered Internet sites and news organizations to delete all references to a recent rare interview of Premier Wen Jiabao by CNN. In that Sept. 23 interview (shown below), Mr. Wen said that “the people’s wishes for and needs for democracy and freedom are irresistible.”
According to yesterday’s New York Times, China’s main Communist Party newspaper, People’s Daily, bluntly rejected calls for speedier political reform, publishing a front-page commentary that said any changes in China’s political system should not emulate Western democracies, but “consolidate the party’s leadership so that the party commands the overall situation.”
A cheer for Premier Wen – near the end of the interview, Wen mentioned one of his most-read book is “The Theory of Moral Sentiments” by Adam Smith. WOW!